Russian aggression is not likely to go away soon. As a result, Ukraine needs to revise the current framework guiding its economic disengagement from the occupied regions of the Donbas and Crimea. Economic disengagement limits the risks of financing terrorism with money coming from mainland Ukraine, and makes sure that the occupied areas of Donbas don’t turn into an economic grey zone and center of smuggling. It is also important to counter the Kremlin’s policy, which seeks to preserve control over the occupied areas of the Donbas without taking any economic responsibility for the region.
Disengaging from the occupied areas of the Donbas will be complicated; prior to Russia’s aggression, the region generated 16 percent of the country’s GDP. Despite the overall ban on Ukrainian business relations with the region, there are a number of important exemptions. The most notable is trade in coal. After Russia’s aggression began in the Donbas, Ukraine lost all sixty of its mines producing anthracite, the energy-grade coal used in 45 percent of the country’s fossil fuel power plants. Dependence on coal from the occupied areas of the Donbas overshadows Ukraine’s significant successes in decreasing its reliance on Russia’s natural gas and nuclear fuel. With the goal of lowering its need for such coal supplies, the government has been working to diversify coal imports since late 2014 and looking for opportunities to shift power plants from anthracite to gas-grade coal. In preparation for the 2016-2017 heating season, the government announced plans to increase nuclear power plants’ role in producing electricity for Ukraine. However, actual progress in these areas is yet to be seen.
